New data from consulting firm Mercer shows that the majority of financial services companies have decreased their annual cash bonus as part of their employee pay mix and increased base salaries and the use of deferred compensation.
Recently proposed EU legislation on banker's bonuses will cap the cash element of bonuses for those in the financial services sector at 30 per cent. The remaining bonus payments will be delayed and linked to long-term performance, with 50 per cent paid in shares. The legislation will be binding from January 2011. According to Mercer's "Executive Incentive Plan Snapshot Survey" most banks and insurance companies from the 39 surveyed financial services organisations in Europe and America are already moving in the desired direction. 70 per cent have increased base salaries whilst decreasing annual cash bonuses (94 per cent).
The weight of long term incentives has also been increased by 56 per cent of respondents. 38 per cent of companies have reduced the proportion that stock options form within the long term incentive mix. Two-thirds of the organisations typically have linked a proportion of their awards to company performance. Most companies are using performance scorecards with both financial and non-financial criteria. Only about one-third of companies have introduced multi-year performance metrics for determining annual bonuses. (August 4th 2010)